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Investors of Apple Inc. (NASDAQ: AAPL) shouldn't be concerned over slowdown in China, according to a note from Sterne Agee CRT's Rob Cihra.
Apple And China
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Apple revenue from China fell 26 percent in its March quarter versus 71 percent growth a year ago. Cihra added that China accounted for 26 percent of Apple's revenues in calendar 2015 and was responsible for 43 percent of the iPhone maker's entire growth in CY11-15.
Cihra's note observes that China accounted for an estimated 29 percent of global smartphone units in 2015, up from 16 percent back in 2011, and the country represented 36 percent of all smartphone market growth from 2011–15 alone. However, China's growth slowed from >100 percent Y/Y back in 2011–12 to just about +2 percent Y/Y in 2015.
The analyst expects Greater China revenues declining through the year: -15 percent Y/Y in FY16 versus +84 percent in FY14. However, he remains bullish on Apple with a Buy rating and $135 price target.
"China flipped from Apple's biggest tailwind to headwind last quarter...yet we do not see China's slowdown as Apple-specific nor competitive," Cihra elaborated.
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According to Cihra, "Apple's biggest hurdle is comping its extraordinary +84 percent year-over-year growth in FY15," which should also be easing in the December quarter.
Previously, most smartphone market growth came from the conversion of "legacy/dumb" feature phone users to smartphone users, but the analyst said now smartphones become more of a replacement market as 80 percent of that conversion is complete.
As a result, Cihra noted the only growth happening in the market is among local players such as Huawei and Oppo, while Xiaomi's momentum is "now meaningfully slowed."
"For Apple in particular, we believe a big part of its own +4 percent point China smartphone market share gain in CY15 came out of Samsung, which lost -6 percent points Y/Y," Cihra highlighted.
Bright Light Ahead?
However, all is not lost on China, as carrier data "at least remains positive in terms of 4G LTE subs, with China Mobile reporting monthly net additions averaging +20 million in the past six months." The analyst also cited a data from App Annie that showed China overtaking Japan as the second largest market for iOS revenue in the March quarter.
Cihra compared the current situation with the PC market when China's contribution started falling. The analyst noted that China single-handedly accounted for 49 percent of all PC market growth from 2007–12 before it fell off a cliff starting 2013, after which it became nearly impossible for the global PC market to grow. China accounted for an estimated 13 percent of the PC market back in 2007, but currently stands at 22 percent.
"We see Apple paralleling a slowdown across China's entire smartphone market. That's a challenge since China, as in the PC market, is a near necessity for market growth, but not Apple-specific," Cihra added.
According to TipRanks, Cihra has a success rate of 50 percent with an average return per recommendation of +7.5 percent. The analyst is ranked 637 out of 3,911 analysts.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.